First there was Starbucks.
But now the cheap latte is hot in China.
By undercutting Starbucks’ prices, Luckin Coffee expanded to 10,800 stores. After that though, with its 5,800 new cafes, Cotti Coffee repeated the pattern. Continuing the price war, when Cotti dropped latte prices at some stores to 9.9 yuan ($1.38) –15 cents less than Luckin–Luckin went down too. And then, Cotti dipped the latte to 8.8 yuan.
Rather than an aspirational Starbucks, the Chinese consumer wants the Cotti discount.
The Chinese Consumer
China’s “casual luxury customer” is cautious. Instead of an expensive skin toner, one consumer said she switched to a less costly Chinese brand. The discount shopping website Panduoduo reports a 63 percent revenue boost during the first half of 2023, compared to last year.
Below you can see that Kering’s shrinking revenue reflected the slowdown:
With its sales in China down 2.5 percent, even Apple is feeling the pinch. Similarly, Canada Goose called the Chinese environment “challenged” as did Estée Lauder. Joining Estée Lauder, retailers like Yum China (KFC, Pizza Hut, Taco Bell) cited China as a reason that they cut their outlook.
Our Bottom Line: The Chinese Economy
Plagued by a troubled real estate sector and fewer exports, a less than vibrant Chinese economy has hit the consumer psyche and pocketbook. Developers don’t have cash. Unfinished, their apartment projects are languishing. Meanwhile, when China lowered interest rates hoping to boost spending, bank deposits increased.
We can sum it up by saying that the wealth effect has shrunk. Trickling down to the consumer, a post covid slump that pulled home prices down and youth unemployment up, is making people feel less affluent. As a result, their conspicuous consumption disappears.
We can see that, when China sneezes, Canada Goose gets the cold.
My sources and more: Thanks to my Hustle email for inspiring today’s post. Then, happily, WSJ the NY Times, and Reuters had related articles.
And finally, we should add that Starbuck says it will continue to expand in China to 9,000 stores by 2025.